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Viewpoints: Technology Makes Re-Shoring a Reality

By Kevin MeehanChief Operating OfficerHydromat Inc.St. Louis, MO

For once, the manufacturing community is in the enviable position of being the shining star in our otherwise lackluster economic recovery. It couldn’t have come at a better time as favorable media attention has raised awareness and been a political catalyst to finally get manufacturing to the center stage as a real and lasting way to create higher paying jobs and spur meaningful growth.

One only has to travel to Germany or Asia to be greeted in the baggage claim area with billboards showcasing machine tools, hydraulic systems, and controls technologies, among other industrial products. Claim your bags and head to the curb to see one luxury sedan or SVU after another whisking a steady stream of business people headed down highways dotted on both sides with scores of big name domestic and international manufacturing powerhouses. The economic template is plain to see.

Our political leaders starting with President Obama had better not forget Economics 101. That is, manufacturing activities have a much higher economic multiplier effect than service-related businesses. The more value you add to a product, the higher the multiplier. I see first-hand how manufacturing our rotary-transfer equipment generates a tremendous amount of orders to our local and national suppliers, who, in turn, generate orders to their suppliers and so on. Real products and wealth are actually created as value is added to raw materials as they make their way up the supply chain. Compare these activities to that of a financial services business which basically conducts paperless transactions. Wealth is traded, invested, and moved around, but not necessarily created.

There continue to be indications that the pace at which companies are off-shoring production of their products to "low cost" countries has slowed from just a few years ago. Furthermore, we all have some first-hand knowledge of manufacturers who have reshored production of their product back to the US. And why not? The United States is emerging as global low-cost producer who will enhance their status with rapid continuous improvement in two key areas:

Creation of a consistent and fair regulatory and tax policy at the state and federal level. President Obama and Congress must do their part in this area and reverse their current strategy of quick fix stimuli, knee-jerk government intervention, and burdensome requirements that put the US at a disadvantage with our global competitors.

Produce a more skilled and high-tech labor pool. This is a more difficult challenge, but one that should begin to correct itself under the current media and political drumbeat lamenting the shortage of skilled labor and high-tech workers. Political leaders starting with the President can use their bully pulpits to promote manufacturing and fund training and education programs that teach the advanced skills needed in today’s factories. Business leaders need to do their part by committing more resources to technical apprentice programs that take over where schools leave off.

Current machine-tool and automation technologies with the corresponding skilled labor to optimize them are the great equalizers that will drive re-shoring if companies truly understand the Total Cost of Ownership (TCO) in producing their products in low labor cost countries. (TCO is explained in great detail at www.reshorenow.org.) This is especially true in the production-component part manufacturing arena, which has been a hard hit segment over the last ten years, but now holds the greatest opportunities for gain.

CNC rotary-transfer technology represents one of the key ways to neutralize the lower cost of labor in these countries while producing superior quality parts in a much smaller footprint than the one man-per-spindle mentality of China and India. For example, a CNC rotary machine loaded by robot with a blank, which is chucked one time for 20 operations, including some in-process gaging, can process the part through unload onto a conveyor for laser marking and automated packaging. One operator oversees this system with time left over to perform other high value-added tasks. CNC technology is also the key for re-shoring medium-quantity production work.

According to a November 2008 study by the Manufacturing Alliance, the structural costs between the US and off-shore manufacturing operations have shrunk significantly in recent years down to 17.6% in 2008 from 32% in 2006. As we approach 2012, it stands to reason that the gap is closer to 10%. This is very good news for widespread re-shoring, because the right technology can overcome this with plenty to spare. ME

This article was first published in the October 2011 edition of Manufacturing Engineering magazine. Click here for PDF.